We’ve heard so much (but not lately) about reparations for slavery. The Left wants people who had nothing to do with slavery to give lots of money to people who were never enslaved. But suppose that there was a situation that properly called for reparations. Hmmm….

Lancet published a study indicating that the Chinese Communist Party is directly culpable for 95% of all COVID 19 cases worldwide. The CCP delayed quarantine measures in Hubai Province by three extra weeks, allowing five million travelers to enter and leave the hot zone, distributing Wuhan Flu widely around the world. Along with this malfeasance, the CCP also falsified information about the disease and its prevalence. All of this information slowed the response, killing more people.

The US Government has appropriated over $2 trillion to respond to the pandemic, of which 95% is directly attributable to CCP misconduct. In legal language, the CCP has committed a tort against America. If a US magistrate were to conclude that the CCP and its proxies, the Peoples’ Liberation Army and CCP-owned businesses, were at fault in this injury, then it would be possible to have a $2 trillion judgment against the CCP.

There are several possible ways to do this. The simplest is by Presidential Declaration. This has the awful side effect of eliminating a lot of President Trump’s negotiating room. The second obvious approach is a lawsuit. This would take forever winding through the Courts, and while this is happening, Treasury securities held by the Chinese will be progressively redeemed, doing nothing for the US.

The third way is one that is common in US political theater. In this case, either the Treasury Department or the Department of Health and Human Services (or both!) creates an administrative hearing on the complaint. The outcome is a foregone conclusion. The CCP is hit with an administrative penalty of $2 trillion. Note that this isn’t even in the same zip code as the military or cyber. It’s from an administrative law court. Please note that this isn’t an issue of a default by the Federal Government. It’s recovering a bad debt.

Now comes the fun. All of the $1.08 trillion in Chinese-held Treasuries is ultimately under the control of our Treasury Department. When a T-bill or bond is redeemed at maturity, the Treasury gives the money to the holder. That means that the Treasury has complete control over $1.08 trillion in Chinese money. And that gives it a host of options.

The first step is to demand satisfaction of the judgment. The CCP will almost certainly tell Secretary Mnuchin to pound sand. They don’t have the cash, and “it would be an act of war” to require them to pay funds that “they don’t owe.” At that point, he will freeze all the Chinese assets. This brings them to the table. Absolutely anything becomes possible here.

Secretary Mnuchin can remind the Chinese, in a most public manner, of how they lied to the world about the virus, refused to quarantine Wuhan, are continuing to lie about their malevolent acts, and are actively pursuing cyber warfare against the West regarding the virus. “By the way, the $2 trillion is just the first tranche of damages against the CCP.”

The Chinese economy is already in shambles, and US Treasury instruments are the reserves that prop it up. If we find the CCP in default on the judgment, we have the right to seize those reserves to satisfy it. This is a fundamental premise in law. If the Court finds against me, the plaintiff has the right to take my property if I don’t pay.

Now we have to assess how this plays out. If we void all the $1.08 trillion of debt at once, China crashes. They will take it as an act of war. Wounded animals don’t play nice. Especially ones with sharp claws. So here is where Trump steps in. He has a good personal relationship with Xi, and perhaps he can persuade him to take actions we’d like.

Maybe the disputed islands in the South China Sea can become joint Coast Guard bases. Perhaps instead of all at once, the Treasury securities can simply be as they come due to pay down the judgment. That would spread the pain over ten years or so. We could offer to roll short term notes at higher rates for longer (30 years?) notes at minimal interest. Either option would help our debt and debt service. What’s not to like about cutting our debt by a trillion or so?

Can Xi save enough face to stay in power? The President will obviously be concerned with pushing him just hard enough to get concessions. Or will the Chinese society convulse as its economy implodes?

There aren’t any clear answers. But an administrative order for Chinese reparations might give Donald Trump the leverage to do all sorts of things we may not even know about now.

I can’t wait to open this Cracker Jack box!

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